Voss Capital, LLC an investment management company, released its first-quarter 2023 investor letter. A copy of the same can be downloaded here. Voss Capital’s funds, Voss Value Fund, LP, and the Voss Value Offshore Fund, Ltd returned +1.6% and +1.5% net of fees and expenses respectively, in the first quarter compared to a +2.7% return for the Russell 2000 Index, -0.7% return for the Russell 2000 Value Index, and +7.5% return for the S&P 500 Index. Voss Value Master Fund’s total gross exposure as of March 31st, 2023, was 155.6% and net long exposure was 83.9%. In addition, you can check the top 5 holdings of the fund to know its best picks in 2023.
Voss Capital highlighted stocks like Academy Sports and Outdoors, Inc. (NASDAQ:ASO) in the first quarter 2023 investor letter. Headquartered in Katy, Texas, Academy Sports and Outdoors, Inc. (NASDAQ:ASO) is a sporting goods and outdoor recreational retailer. On May 19, 2023, Academy Sports and Outdoors, Inc. (NASDAQ:ASO) stock closed at $53.81 per share. One-month return of Academy Sports and Outdoors, Inc. (NASDAQ:ASO) was -21.17%, and its shares gained 78.00% of their value over the last 52 weeks. Academy Sports and Outdoors, Inc. (NASDAQ:ASO) has a market capitalization of $4.148 billion.
Voss Capital made the following comment about Academy Sports and Outdoors, Inc. (NASDAQ:ASO) in its Q1 2023 investor letter:
“Academy Sports and Outdoors, Inc. (NASDAQ:ASO) is a sports and outdoor retailer based in Houston, TX, with 268 locations across 18 states. ASO is concentrated in the south and southeast, which contain many of the fastest growing markets in the country in terms of both population and labor force. Of ASO’s current footprint, 40% of stores are in Texas with another 40% spread across Florida, Georgia, Alabama, North Carolina, South Carolina, Arkansas, Oklahoma, and Tennessee – all states in the top 20 for net migration since 2020. ASO recently hosted an investor day where they presented their plan to reach $10 billion in revenue, 13.5% operating margins, and 10% net margins by 2027, with a 30% ROIC. This plan includes 120 – 140 new store openings and 3% average same-store sales for existing stores. The company emphasized that these targets were calculated with the assumption that there may be a recession in 2023 or 2024. While there are typically a lot of risks associated with a retailer or restaurant expanding into new markets that aren’t familiar with the brand, we believe ASO has a good track record of doing this successfully and profitably. 7 All ASO’s stores are profitable6, including stores that are the only Academy location in the state such as in West Virginia, Virginia, or Illinois. In fact, ASO’s stores are so profitable that even its worst quartile of stores generates the same amount of operating income ($2 million EBIT per location) as its largest competitor’s average store7.
Two of ASO’s three distribution centers are currently operating at only 50% of capacity, giving them plenty of space to grow into with lower incremental capital needs. If the company executes on its guidance, it will generate $3.5 billion in free cash flow cumulatively from 2023 – 2027. Given this FCF build (assuming no buybacks or dividends), ASO’s enterprise value in 2027 (at the current stock price) would be $1.8 billion or 1.1x 2027 EBIT. The 75th percentile of ASO’s retail peer group trades at 14.5x FY2 EBIT. Achieving these targets over the next four years would cement ASO among the best-in-class public retailers, coming in above the 90th percentile in value-driving metrics including revenue growth, margins, and ROIC. However, even if ASO is valued at just the current median EV/EBIT multiple of the peer group (8.5x) in 2026, it would result in an enterprise value of $11.5 billion. If one adds on the estimated $3.2 billion in net cash in 2027, this will equate to an equity value of $14.7 billion or $184/share, 207% upside from today’s price of ~$60/share or a 45% 3-year CAGR. This assumes the management team can more or less hit the targets they laid out at their 2023 investor day in April–but should they whiff, there could be a downside buffer (or further upside) if there is any value-additive capital allocation along the way.”
Academy Sports and Outdoors, Inc. (NASDAQ:ASO) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 34 hedge fund portfolios held Academy Sports and Outdoors, Inc. (NASDAQ:ASO) at the end of the fourth quarter which was 31 in the previous quarter.
We discussed Academy Sports and Outdoors, Inc. (NASDAQ:ASO) in another article and shared the list of companies that just started paying dividends. In addition, please check out our hedge fund investor letters Q1 2023 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
